Empowerment zones were one of those rare political ideas that
evoked real excitement, quite simply because they made sense for
all involved. Economically distressed areas would receive an
injection of life, business owners would get to tap a market in
need, and the federal government could encourage employment and
discourage crime.

Too good to be true? Maybe not. Recently, the Commerce
Department took the biggest step toward making empowerment
contracting a reality since President Clinton first promoted the
idea in August 1994. "One component of [Clinton's]
affirmative action speech was his plan to establish a program that
would provide preferences for businesses, regardless of race or
gender, that were located in distressed areas," says Larry
Parks, assistant to the secretary of the Commerce Department, and
director of the Office of Regional Growth. "He wanted to use
the government contracting system as a way to stimulate business
growth in distressed areas."

This spring, after what Parks describes as "a lot of
internal action," the Commerce Department plans to start
testing its empowerment contracting program. Small-business owners
have quite a bit to be excited about, as the program offers them a
considerable advantage over big businesses. "When you're a
federal contractor, you look for competitive advantages," says
Parks. "And this is one of them. There is a huge advantage for
small businesses in using the program."

The Commerce Department, says Parks, has set up a point
preference program, which allows the government to
"score" bidders. Though contracts traditionally go to the
lowest bidder, this point system opens the door for higher bidders
that are located in areas in which at least 20 percent of the
population is considered distressed. Three qualifications would
give businesses an edge in qualifying for government contracts:
Fifteen to 25 percent of the employees would have to be residents
of the distressed areas, at least
25 percent of the business's physical plant would have to be
located there, and at least 15 percent of the subcontracting done
would have to be with businesses in the distressed area.

According to Parks, big businesses have to meet two of these
three criteria, while small businesses have to meet only one of the
three, giving entrepreneurs great opportunities. "There have
been a lot of changes in the federal procurement system designed to
make it easier to do business with the government. However, a lot
of small businesses feel that when we move to this efficiency
level, we're actually just scaling back on dealing with small
businesses," Parks acknowledges. "This gives them
reassurance that that's not the case."

And, perhaps more important, it provides them with a chance to
make a difference. "[Empowerment zones] can add to the tax
base of communities that are really struggling," says Parks,
"and employ people who are most in need. This represents a ray
of hope for these communities, too. It shows them that the
government is going to do everything it can to encourage new
businesses to come there."

Starting in April, the Commerce Department will post Internet
notices of empowerment contracting opportunities in the
Commerce Business Daily.

American Way

Entrepreneurship soars from coast to coast

Entrepreneurship is a more integral part of American life than
we even imagined. According to a recent pilot study by the
Entrepreneurial Research Consortium (ERC), about 35 million
households--more than 37 percent of the U.S. total--include at
least one person who is either running a small business, has
invested in a small business, is trying to start a small business,
has run a small business, or has tried in the past to start a
business.

"The finding that more than one-third of all [U.S.]
households have at least one person who is involved in the world of
new and small business, that's a surprise," says Paul
Reynolds, ERC coordinator and a professor of entrepreneurial
studies at Babson College in Wellesley, Massachusetts.

Of these 35 million U.S. households, about 18 million include
someone currently running a business, 6.8 million include someone
trying to start a business, about 2.6 million include someone
privately investing in a small business, and the rest include
someone who once started or attempted to start a business.

The prevalence of "business angels," or private
investors, was another major surprise in the ERC's study.
"If you count the money coming from venture capital firms, the
Small Business Administration and banks, that's probably only
50 percent [of business capitalization]," says Reynolds.
"So the other 50 percent may be coming from these informal
arrangements. If you're talking about $5,000 to $10,000 from 2
million households, that's $10 billion or $20 billion. And that
may be the key to how people are capitalizing their business
start-ups."

Reynolds adds that the link between the households and
entrepreneurship was at about twice the level he expected. And even
that number is conservative. Reynolds points out that the study
counted only one individual involved in each activity, even though
about 10 percent of the households reported multiple occurrences of
each activity.

Considering the implications, "I think it's criminal
that the government doesn't have better information on this
issue," says Reynolds. "I mean, look at the basics
here--one-third of our households have someone involved in [small
business] in some fashion, and about 4 to 6 percent of the adults
in their prime working years are trying to start a business. We
already know new and small businesses are one of the major sources
of job growth, and yet our government does not know how many new
businesses are being started every year. That's the bottom
line."

Reynolds expects the ERC, a consortium of universities and
research groups, will find even more groundbreaking conclusions in
its second pilot study, which will delve deeper into issues such as
the number of start-up efforts required to get one business in
place, or how much education and training entrepreneurs have.
"We hope when the initial work is done in the scholarly
academic sector and when it proves its value for policy
purposes," he says, "the federal government will pick up
the ball."

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